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LONDON (Alliance News) - UK stocks are trading mixed Thursday, after the latest FOMC minutes only serve to fuel speculation over taper timing, European PMI's largely disappoint, and UK government borrowing falls by less than expected.
The minutes released late Wednesday of the latest Federal Reserve policy meeting showed that the policy members still "generally expected" to begin to taper the US central bank's asset purchase program in "coming months" if the labour market continues to improve in line with projections.
"Yes they imply a willingness to reduce bond purchases as the economy improves, but these minutes are three-weeks out of date and have been succeeded by comments from Yellen and Bernanke, with neither seeming to be in a hurry", says CMC Trader Toby Morris.
By mid-morning Thursday the FTSE 100 is marginally lower at 6,678.97, the FTSE 250 is up 0.2% at 15,217.27, and the AIM All-Share is up 0.2% at 812.97.
A raft of European PMI data has been released and serves to further highlight the problem of diverging economies within the eurozone, with Germany propping up its economically weaker neighbours. Manufacturing PMI in France fell to 47.8 in November, from 49.1 in October, while the service PMI fell to 48.8 from 50.9.
In Germany, however, manufacturing PMI rose to 52.5 in November, from 51.7 in October, beating economists expectations of 52.0. The German services PMI also improved to 54.5, from 52.9, and beat the expectation for a reading of 53.0.
The EU manufacturing PMI was in-line with expectations, at 51.5 in November, up marginally from 51.3 in October. The service PMI for the EU was 50.9, down from 51.6 and missing the expectation of 51.9.
The eurozone composite PMI came in at 51.5 for November, down slightly from 51.9 in October and missing economist expectations of 52.0.
"The worry for me with respect to these PMI?s is they show the economies of the two main pillars of Europe going in completely opposite directions", said CMC Markets Chief Analyst Michael Hewson. With reports out on Wednesday that the ECB is considering a negative deposit rate, the numbers will fuel the debate that different parts of Europe need different interest rates. "This will certainly raise tensions between the two in particular with respect to the French who will be urged to reform their sclerotic economy by the Germans", Hewson said.
The data has done little to help major European equity markets, with the CAC40 down 0.7% and the DAX down 0.5% by mid-morning.
UK public sector net borrowing in October was GBP8.1 billion, compare to GBP8.2 billion a year ago. The borrowing figure has improved from GBP9.4 billion seen in September, but not nearly as much as expected given the faster-than-expected pace of the UK economic recovery. Economists have expected the borrowing figure to fall to GBP4.0 billion.
"The government?s long term economic plan is working, and the deficit is down by a third. But today?s figures remind us that the job is far from done and a growing economy alone will not be enough to eliminate the deficit. The only way to ensure that the recovery is sustainable and the deficit keeps on coming down is to carry on taking difficult decisions to control government spending", said a Treasury spokesperson.
The foreign exchange markets reacted with some volatility on release of the European PMI's and the UK debt numbers. The euro dropped to a low against the dollar of USD1.3397 in reaction the poor French reading, while the pound made a low of USD1.6070. Both currencies have stabilised however, ahead of a speech ECB President Mario Draghi will be delivering in Berlin later in the morning.
Within UK equities Johnson Matthey is the fastest gaining blue chip, up 3.6%. The precious metals and speciality chemicals company said its pretax profit jumped 12%, up to GBP202.1 million for the six months ended September 30 from GBP180.1 million the previous year.
In the FTSE 250, aerospace, security and defence company QinetiQ is the biggest gainer, up 6.8% despite reporting lower profits and revenues for the first half of its current financial year, hit by the slowdown in US defence spending. Shares are gaining as despite the lower revenues. The group managed to maintain its outlook and raised its dividend to 1.4p, from 1.1p.
Still to come Thursday, market participants will be keeping an eye on Draghi's speech for any hints about the possibility of negative deposit rates, as reported as a possibility by Bloomberg on Wednesday, or other policy insights.
The UK CBI industrial trends survey is out at 1100 GMT, and is expected to show a flat reading, improved from minus 4.0 previously.
In the afternoon, focus will be on US jobless claims and PPI numbers, both due at 1330 GMT. The expectation for the weekly jobless claims is for 335,000 new claims, down from 339,000 seen last week.
By Jon Darby; jondarby@alliancenews.com; @jondarby100
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